Policy Language Precludes Pre-Award Interest
The Minnesota Supreme Court recently ruled that policy language precluded pre-award interest in a first party property damage claim. In Wesser v. State Farm Fire & Cas. Co., No. A21-1587, 2023 Minn. LEXIS 198, (Apr. 26, 2023), policy language stating that “no interest accrues on the loss until after the loss becomes payable” precluded pre-award interest under Minn. Stat. § 549.09.
Aaron Wesser had homeowners’ coverage with State Farm which covered “all loss or damage” by fire to his home. The Policy provision detailed when Wesser’s loss and interest on the loss was payable. Specifically, “[n]o interest accrue(d) on the loss until after the loss (became) payable.”
On February 5, 2020, after Wesser’s home sustained fire damage, he notified State Farm of the damage. State Farm estimated the repair cost to be $241,451.45 five months later, and paid Wesser that amount. Wesser disagreed with the valuation. The parties submitted the claim for appraisal as set forth by the policy in cases of disagreement. The appraisal panel issued an Actual Cash Value award of $228,191.74 and found that the loss replacement cost was $302,113.50. On February 26, 2021, Wesser demanded $30,211.35 in pre-award interest on the appraisal award. Wesser argued that interest accrued from the date of his written notice of the fire claim (February 5, 2020) and until the appraisal award was issued (February 4, 2021). State Farm refused to pay pre-award interest and argued that because it already paid more than the actual cash value for the loss before the appraisal award was issued, there was no outstanding amount upon which interest could accrue.
Wesser filed suit against State Farm demanding pre-award interest, and both parties moved for summary judgment. The district court determined that Wesser was not entitled to pre-award interest as the loss was only payable after filing of the appraisal award; so, before the appraisal award on February 4, 2021, no pre-award interest accrued.
The court of appeals reversed, holding the policy language was ambiguous because “loss” had several meanings. Accordingly, the court of appeals held that ambiguity must be interpreted in favor of the insured.
The Minnesota Supreme Court reversed, holding that Minn. Stat. 549.09, subdivision 1(b), allowed parties to a contract to completely preclude pre-award interest or specify when such interest shall accrue. Then, the Court turned to the Policy language, which stated, “[n]o interest accrues on the loss until after the loss becomes payable.” Because the term “interest” was not qualified, it encompassed pre-award interest. Further, “payable” was governed by a provision which stated that “loss” was “payable” after State Farm received Wesser’s proof of loss and an appraisal award determining the loss amount. The Court acknowledged that “loss” could mean actual cash value or replacement cost, but that was irrelevant because both provide identical answers to whether interest is owed on the loss and when interest begins to accrue. Minnesota’s standard fire policy, Minn. Stat. § 65A.01, allowed an insurer to deny pre-award interest because the standard fire policy does not govern interest accruing before the appraisal award is filed with the insurer. In addition to providing a commonsense application of the policy provisions, the decision also is consistent with basic equitable principles as State Farm had already paid more than the actual cash value of the loss before the appraisal award was filed, and there was no outstanding amount upon which interest could accrue.
Please feel free to contact Tom Brock, Bob Kuderer, or Matt Johnson with any insurance coverage questions.